Instructions

Suppose you are running an enhanced indexing equity strategy and the tracking error is too high for this strategy. What would you do to bring the tracking error to acceptable levels given you are restricted to equities only within the strategy? What would you do if you were allowed to expand to other asset classes?

2.Explain within a small essay the usage of derivatives in a portfolio. What would be the main reasons for using derivatives and what types of funds would normally engage in derivatives trading?

3.Describe in simple terms the efficient market hypothesis. Do you agree with this hypothesis or not? Explain your answer briefly.

4.Provide an overview and classification of alternative investments. The term here refers to any assets or strategies that are not strictly based on stocks or fixed income instruments. Make sure to mention all alternative investments you are familiar with and in each case provide a list of advantages and disadvantages of having this asset in the portfolio.

5.C. Comment on when the two will be equal and provide an example.

6.Give the definitions of tracking error and information ratio. Is the expected tracking error of an active strategy higher or lower than an enhanced indexing strategy? If you are told by your line manager that the fund allocated for you to manage this year will be “a high alpha strategy”, would you expect a related high or low tracking error?

about 300 words for each question

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